34,100 new and resale home transactions closed escrow in California during August 2022. August sales volume was slightly higher than the prior month but a devastating 29% below a year ago. In defiance of the annual sales cycle, home sales volume peaked early this year, in March 2022. 

Despite August’s minor bump in sales volume, year-to-date (YTD) sales volume trails 18% below 2021 and a meager 2% above 2019 — the last year to experience a typical seasonal sales cycle. Further, this spread over 2019 is rapidly narrowing as sales volume continues to fall in 2022, expected to dip below 2019 levels by year’s end.

2019 ended with 438,000 annual home sales in California. 2019 followed several years of flat-to-down sales volume and was the last “normal” year for sales volume, absent the volatile distortions of 2020-2021’s Pandemic Economy

2019’s pace of sales will not be sustained in 2022. As the effects of pandemic stimulus are now behind us and mortgage rates have skyrocketed, homebuyers have backed off from acquisitions. Further, 2022‘s undeclared recession is cooling both buyer and seller attitudes. The housing market will see declining sales volume in 2022-2024, with prices bottoming around 2025. Watch for a return of real estate speculators in 2024 to provide a “dead cat” bounce during the coming sales slump, with a sustainable recovery taking off with the return of end user homebuyers around 2026-2027.

Updated October 4, 2022. Original copy posted March 2009.

Chart 1

Chart update 10/04/22

Aug 2022Jul 2022Aug 2021
Southern CA 17,20016,40024,600
Northern CA
16,800
15,600
23,500

CA Total

34,10032,00048,100

The above chart tracks the home sales volume of single family residences (SFRs) on a month-to-month basis. Sales volume includes the sale of all residential resales and new homes in California, including new homes sold directly by builders.

Home sales vary from month-to-month for a variety of reasons, most significant being homebuyer demand. This demand is influenced by several factors constantly at work in California’s homebuying market, including:

Seasonal differences in annual sales volume

It’s normal for home sales volume to rise in the first half of the year and fall after June, generally speaking.

Chart 2

Chart update 02/02/19

Chart 2 shows average home sales as experienced from 2011-2018. As depicted, the most homes are regularly sold each year in June. Another small increase takes place in December, as homebuyers seek to wrap up their financial activities before the end of the year.

Therefore, real estate professionals are not to worry when they hear of falling sales volume in the latter half of the year. This is a normal seasonal progression. What to watch for is year-over sales comparing a month or other period (such as year-to-date) this year with the same month or period last year.

The ongoing recovery for home sales volume

Annual real estate sales numbers since the Great Recession of 2008 have been characterized by a continuing bumpy plateau in home sales volume, now experienced for over a decade. As a rule, current market action, whether up or down, is reflected first in sales volume, followed by prices, and both fluctuate from month to month mostly going in opposite directions or just standing still.

2021 was the first year to see a significant increase in annual sales volume, rising 22% over the prior year. However, 2021’s sale numbers still pale in comparison to the peak year for sales volume experienced in 2005, 29% below this peak year.

Chart 3

Chart update 02/05/21

2021
202020192005 peak
NorCal 256,400204,500208,300398,200
SoCal 280,200234,700229,200355,700
Total 536,600439,200437,500753,900

To set the stage for a forward look, a review of sales volume in the recent past is helpful:

  • Mid-2005 saw sales volume peak for all types of real estate in California, with nearly 754,000 homes sold that year;
  • Nearly 30% fewer sales were recorded in 2006 than in 2005, while sales dropped an additional 30% in 2007;
  • sales bottomed in 2008 and were artificially inflated in 2009 due to subsidy-induced purchases and speculators jumping on the momentum, but remained 40% below 2005;
  • 2010 saw a decline from the year earlier in both sales volume and prices;
  • 2011 increased slightly in sales volume while decreasing in sales prices, a normal price adjustment condition;
  • 2012 saw sales volume increase marginally and home prices jump significantly by year’s end, supported primarily by massive speculation;
  • 2013 home sales volume stagnated, while home prices continued to increase rapidly, not a good sign for the immediate future; and
  • 2014 saw home sales volume decrease throughout the year, ending the year 7% below 2013.
  • 2015 ended 9% higher than 2014 — in other words, just about level with 2013. [See Chart 4]
  • 2016 and 2017 sales volume continued a flat trend in sales which began in 2015;
  • 2018 saw sales volume decrease rapidly in the fourth quarter, ending the year 4% below 2017;
  • 2019 home sales volume decreased slightly from the prior year; and
  • 2020 home sales were extremely volatile, dropping as much as 30% mid-year, but bouncing back sufficiently enough by Q3 and Q4 to make up for the loss, ending 2020 roughly level with 2019.
  • 2021 home sales volume rose 22% over the prior year, spurred on by low interest rates and buyer fear-of-missing-out (FOMO) following a year of pandemic-slowed sales.

Chart 4

Chart update 10/04/22

Aug 2022Aug 2021Aug 2020
Home sales volume
year-to-date

296,000359,900263,200

Video updated October 2022

Year-to-date (YTD) home sales volume continues to fall back in recent months, following a 22% annual jump in 2021. In 2022, YTD home sales volume is 18% below a year earlier as of August 2022, and falling. Compared to 2019 (the last “normal” year for housing before the Pandemic Economy took over), home sales volume YTD is a minor 2% higher as of August 2022. This spread is narrowing with each passing month, expected to fall below 2019 levels by year’s end.

Home sales volume will fall back in 2022 due to:

  • lower homeowner turnover due to rising mortgage interest rates;
  • reduced home inventory across the state; and
  • the 2022 recession, which is as yet undeclared, but is already being felt across the housing market.

Home prices have leveled off in mid-2022 and will soon fall, dragged down by significant cuts to buyer purchasing power.

When home prices fall, some California mortgaged homeowners will fall underwater. Thus, turnover by this chunk of owners will be restricted.  These homeowners cannot sell and relocate to purchase another home because their homes are worth less than the debt encumbering them. To rid themselves of the home and the debt, they have to endure damaged credit resulting from a short sale or foreclosure. The desire to avoid this embarrassment takes most of these 3.2% homeowners out of the home buying market for years.

Home sales in the coming years

The forward trend in California home sales is mixed for both buyers and seller. Homebuyer income is going further and doing more than anytime during the past 15 years due to increased borrowing capacity brought on by low interest rates, at historic lows in May 2020.

first tuesday forecasts home sales volume will languish in 2020-2021, the result of an unstable jobs market. The peak sales volume last seen in 2004, inflated by speculator acquisitions and excessive mortgage money, is unlikely to return for decades, when interest rates cyclically peak.

Relocating Baby Boomers going into retirement in the coming years will be the primary propelling force in both selling homes and buying replacements. Their Generation Y (Gen Y) children will add to the sales volume at the same time as they find jobs at better pay levels and become first-time homebuyers. Gen Y influence will peak in sales volume at the end of this decade as they complete their shift from renting to owning.

Once California’s job market rebounds from the current recession, their confidence about the future will improve. They will once again be willing to invest in the economy since the expectations for tomorrow are projections based on yesterday’s most recent experience. Only then will occupying homebuyers – end users – return in sufficient numbers for sales volume to swell significantly.

Employment and labor force participation finally exceeded their 2007 peak in 2019, but what took over a decade to recover was lost in a matter of weeks due to COVID-19-induced lay-offs. Expect home sales volume to decrease along with jobs through the rest of 2020 and 2021.

Trends to be concerned about

Many long-term unfavorable market conditions restrain the rise of home sales volume:

  1. the weakest homebuyer demographics in 15 years;
  2. failed savings for a down payment as high rents squeeze potential first-time homebuyers out of saving;
  3. buyer borrowing power no longer enlarging the funds they can borrow as interest rates inevitably rise, reducing funding for purchase-assist financing and dampening property prices;
  4. the public’s increasingly anti-business and pessimistic attitude about American economics, wealth inequality and national politics no matter the outcomes; and
  5. tightened loan standards as lenders are forced to apply forgotten fundamentals of sound mortgage lending practices (20% down payment on non-FHA/private mortgage insured loans, lower income ratios, risk-free credit scores and full documentation of income, funds and collateral value).

The competitive broker

What’s a broker to do until home sales volume takes off?

SFR brokers and agents might consider adding SFR-related services to supplement their income. Those who do add related services will restructure their practice as “all-service brokers.” Transaction-related services will be integrated into their office operations to maintain solvency and grow.

Related article:

Stay ahead of the next recession

These services include:

  • escrowing their in-house transactions under the broker’s license;
  • entering into or expanding property management services;
  • negotiating equity purchases for investors from underwater owners on the chance of a short sale discount or who have a positive equity;
  • specializing in sales and leasing of a particular type of commercial property, other branch office locations and alternative marketing approaches (aside from social media);
  • providing mortgage loan broker services for business-investor loans made by private lenders and secured by the borrower’s residence (no mortgage loan origination (MLO) endorsement required);
  • arranging carryback financing and the take over/assumption of existing mortgages, and buying and selling those carryback trust deed notes;
  • negotiating options to buy, or lease with option to buy when inventories expand as the shadow inventory of speculators returns to be sold;
  • exchanging properties with equity to help owners relocate their wealth held in real estate tax free; or
  • using barter credits in lieu of greenbacks, etc.

Prudent brokers will insist their prospective buyers commit to exclusive representations by the broker and agent to locate a home (or other property). By signing an exclusive right-to-buy listing agreement, buyers commit to employ brokers and agents just as sellers commit to employ brokers and agents, the obverse side of the same employment coin. This will ensure time spent with a buyer produces a closing and a fee.